How to Get a Cannabis Business Loan in 2022

You own a cannabis-related business. You need money. In this article, we will be covering how to get a cannabis business loan in 2022.

First, Some Background…

There are two forms of financing a business owner can obtain: equity and debt. Equity financing is when a business owner gives up a stake in their business for cash, e.g. a dispensary giving someone 25% ownership for $500,000. Debt financing, on the other hand, is what we traditionally understand as loans, e.g. a dispensary borrows $500,000 and has to repay $600,000.

Originally, most of the capital flowing into the cannabis industry came in the form of equity financing. The reasons for this are various, one of the primary being that since cannabis was a fairly new industry, most businesses had not yet achieved the necessary cash flows to support loan repayments.

Over the past few years, we have seen a dramatic increase in the amount of debt financing providers (lenders). Some examples include Bespoke Financial (founded in 2018), Seed to Sale Funding (founded in 2019), and FundCanna (founded in 2021). According to MJBizDaily, in 2020, “debt accounted for 74.5% of total capital raised … the first year in cannabis history that debt exceeded equity.”

Despite the increasing prevalence of debt financing in the industry, due to cannabis remaining illegal federally it’s still very difficult to get financing from a traditional financial institution such as a bank. A few credit unions are starting to dip their toes into the water, but for the most part the landscape is dominated by private lenders.

As we stand in 2022, a cannabis-related business owner now has a variety of financial products at their disposal, such as invoice factoring, vendor financing, term loans, commercial mortgages, and more.

Cannabis, being a higher-risk industry due to increased government scrutiny, has higher interest rates. The good news, however, is that with the influx of new lenders we are starting to see rates come down.

Going Directly to a Lender vs. Utilizing a Broker

If you are a cannabis-related business seeking debt financing, you have two choices: (1) going directly to a lender, or (2) utilizing a broker.

Although going direct seems like the obvious choice, using a broker is typically your best bet, for a variety of reasons.

The reality of this industry is that, despite the increasing number of providers, each lender has a specific niche. Factors that vary between lenders include:

  • Financial products offered
  • States they lend in
  • Underwriting guidelines (i.e. down payment requirements, credit score, minimum time-in-business, monthly revenue, business types they work with, etc.)
  • Minimum and maximum funding amounts
  • Interest rates
  • Term lengths
  • Collateral requirements
  • Term lengths
  • Documentation required

Each lender has unwritten preferences. For example, some lenders give their best rates to dispensaries; others to cultivators. It’s not only a matter of whether you qualify for a lender’s program, but whether that lender is positioned to give you the best terms possible.

A broker, who has seen hundreds of files previously, is going to know (1) which lenders will be able to provide what you need, (2) what programs you qualify for, and (3) who is the best fit for your unique situation.

The other value the broker provides is being able to provide feedback on the offers extended by lenders. Suppose you receive an offer from a lender – how do you know it’s a good offer? The reality is that, unless you have seen many offers previously, you have no way to contextualize what you have just received.

You could be getting lowballed. There could be much better options out there. A broker is able to serve as your advocate, keep the lenders honest, and secure capital for you at the most favorable rates.

Finally, there is the convenience factor. Researching and reaching out to lenders takes time. Preparing the required documents, seeing if you qualify, and comparing rates can be arduous. It’s much easier and quicker to offload the work to a cannabis financing expert.

Before Applying

Before applying for a cannabis business loan, you are going to want to prepare the relevant documents.

This will depend on what specific type of financing you’re looking to obtain. For example, for revenue-based financing such as a merchant cash advance, the last three months or so of bank statements should suffice. On the other hand, real estate loans may have more rigorous documentation needed upfront.

A broker will help you determine, based on the financial product, which documents will be needed. Some commonly requested documents include balance sheets, P&L statements, real estate schedules, recent credit reports, and personal tax returns (if you are expecting a personal guarantee will be required to obtain financing, such as for startups).

Common Questions

A few cannabis-specific considerations as you search for financing:

  • I have a prior felony cannabis conviction. Can I obtain financing?
    • Yes.
  • My business is unlicensed. Can I obtain financing?
    • It is very difficult to obtain funding as an unlicensed cannabis business.
  • My business operates mostly in cash. Do I need a bank account? Can it be a personal bank account, or does it have to be a business bank account?
    • This will depend on the type of financing you are looking for. For revenue-based financing products, lenders will want you to have some type of bank account, whether personal or business, so as to verify cash flows. Other financing solutions, such as invoice factoring, may not necessarily require a bank account.

Next Steps

If you are interested in obtaining financing for your cannabis-related business, please reach out to us at spincapitalgroup.com.

Through our expansive network of capital partners, we are able to secure the best financing terms for our clients.

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